Opec – no production caps agreed

2nd June 2016

The Opec meeting of oil ministers of many exporters has broken up, without a deal on production caps.

The announcement has seen both Brent Crude and West Texas Intermediate slip back slightly. Both were hovering at or just below the $50 mark partly as result of supply disruption due to Canadian wildfires.

Iran was widely thought to be opposed to any supply curbs which some countries, especially significantly Saudi, had been pushing for.

This was the first meeting since the cartel’s relevance was thrown into doubt after it and non-members failed to freeze production in April.

The recent price rises have seen some fund manager become more bullish on the sector.

Invesco Perpertual UK equities fund manager Martin Walker said: “It certainly won’t do any harm, but my holdings in the oil sector are about more than just the value of the oil price. I strongly believe that on a three-year view the oil price will be higher than where it is today for basic supply and demand reasons; ultimately. I think supply will disappoint on the downside – and we’re already seeing supply in the US, for example, starting to tail off and fall – and demand will surprise on the upside. The International Energy Agency is upgrading demand in its latest data – they upgraded their demand forecast all through last year as well.

“Ultimately, this will pull the market back into balance. We think a rebalance of supply and demand could pull the market back into equilibrium in the second part of this year and then, on a three‑year view, I think there’s scope for the oil price to go higher still.

“But the narrative on these companies is about more than just the oil price – there’s a lot of self-help going on. Shell, BP, Statoil and Total are saying to us that there is significant cost to cut. These businesses allowed themselves to become bloated during the good times, when the oil price went from the lows of 1998 to $150 a barrel in 2007.”